You may be able to pay less Capital Gains Tax (CGT) when you sell (or ‘dispose of’) all or part of your business.
Entrepreneurs’ Relief means you’ll pay tax at 10% on all gains on qualifying assets.
Working out if you qualify
You’ll qualify if you dispose of any of the following:
- All or part of your business as a sole trader or business partner - including the business’s assets after it closed
- Shares or securities in a company where you have at least 5% of shares and voting rights (known as a ‘personal company’)
- Shares you got through an enterprise management inventive (EMI) scheme after 5 April 2013
- Assets you lent to your business or personal company
You may also qualify if you’re a trustee selling assets held in the trust.
If you’re selling all or part of your business
Both the following must apply:
- You’re a sole trader or business partner
- You’ve owned the business for at least one year before the date you sell it
The same conditions apply if you’re closing your business instead. You must also dispose of your business assets within 3 years to qualify for relief.
If you’re selling shares or securities
Both the following must apply for at least one year before you sell your shares:
- You’re an employee or office holder of the company (or one in the same group)
- The company’s main activities are in trading (rather than non-trading activities like investment) - or it’s the holding company of a trading group
Either of the following must also apply for at least one year before you sell your shares:
- You have at least 5% of shares and voting rights in the company - if they’re not EMI shares
- You were given the option to buy them at least one year before you’re selling them - if they’re EMI shares
If the company stops being a trading company, you can still qualify for relief if you sell your shares within 3 years.
Selling assets you lent to the business
Both the following must apply:
- You’ve sold at least 5% of your part of a business partnership or your shares in a personal company
- You owned the assets but let your business partnership or personal company use them for at least one year up to the date you sold your business or shares - or the date the business closed
Working out your tax
How you work out your tax depends on whether all your gains are eligible for Entrepreneurs Relief.
- If all your gains qualify for Entrepreneurs’ Relief
- Add together the gains (and deduct qualifying losses) to work out the total taxable gain that’s eligible for Entrepreneurs’ Relief.
- Deduct your tax-free allowance.
- You’ll pay 10% tax on what’s left.
How much tax you pay on your other gains depends on both:
- What Income Tax Rate you pay
- When you made your gain
- Higher rate Income Tax payers
You’ll pay 28% tax on gains made before 6 April 2016 that doesn’t qualify for Entrepreneurs’ Relief.
For gains made from 6 April 2016 that don’t qualify for Entrepreneurs’ Relief you’ll pay:
- 28% on gains from residential property
- 20% on gains made from other chargeable assets
You can use your tax-free allowance against the gains that would be charged at the highest rates (for example where you would pay 28% tax).
Basic rate Income Tax payers
If you’re a basic rate taxpayer, you need to work out the tax rate you’ll pay on gains that aren’t eligible for Entrepreneurs’ Relief.
- Work out how much taxable income you have - deduct your Personal Allowance (PA) and any other income tax benefits you’re entitled to and can claim.
- Deduct this amount from the basic rate tax band for the year you made the gains (£33,500 for the 2017 to 2018 tax year). This gives you the amount of basic rate band you can use against your gains.
- Work out your total taxable gain.
- Use your basic rate band first against any gains eligible for Entrepreneurs’ Relief. You’ll pay 10% tax on these.
- Use any remaining basic rate band against your other gains. You’ll pay 18% on gains made before 6 April 2016. For gains made after this you’ll pay 18% on gains made on residential property and 10% on gains from all other chargeable assets.
- For gains above the basic rate band you’ll pay 28% on gains made before 6 April 2016. For gains made after this you’ll pay 28% on gains made on residential property and 20% on gains from all other chargeable assets.
- You can use your tax-free allowance against the gains that would be charged at the highest rates (for example where you would pay 28% tax).
Claiming and deadlines
You can claim Entrepreneurs’ Relief either:
- Through your Self Assessment tax return (SATR)
- By filling in Section A of the Entrepreneurs Relief help sheet
There’s no limit to how many times you can claim Entrepreneurs’ Relief, and you can claim up to £10 million of relief during your lifetime.
Tax year when you sold or closed your business
Deadline to claim Entrepreneurs’ Relief
2018 to 2019
31 January 2021
2017 to 2018
31 January 2020
2016 to 2017
31 January 2019